- With the price of bitcoin down from a record high in January, there could be a chance to score a tax break, experts say.
- Investors may consider “tax-loss harvesting,” which allows you to offset profitable investments by selling declining assets.
- Currently, there’s also a special tax loophole for longer-term crypto investors.
With the price of bitcoin down from a record high in January, there’s a chance for some investors to score a tax break, experts say.
Following a post-election rally, the flagship digital currency touched $109,000 on inauguration day before falling in February. As of midday Friday, the price was around $84,000, after dipping below $80,000 overnight, according to Coin Metrics.
The latest selloff presents a tax planning opportunity, including a “loophole” that could go away amid Congressional tax negotiations, according to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.
The strategy, known as “tax-loss harvesting,” allows you to offset profitable investments by selling declining assets in a brokerage or other taxable account. Once your losses exceed gains, you can subtract up to $3,000 per year from regular income and carry excess losses into future years.
Some investors wait until December for tax-loss harvesting, which can be a mistake because asset volatility, particularly for digital currency, happens throughout the year, experts say.
“You should look for these opportunities continually and take advantage of them as they occur,” Gordon said.
The crypto wash sale ‘loophole’
When selling investments, there’s a wash sale rule, which blocks you from claiming a loss if you repurchase a “substantially identical” asset within a 30-day window before or after the sale.
But currently, the wash sale rule doesn’t apply to cryptocurrency, which can be beneficial for long-term digital currency investors, experts say.
“If you sell, for instance, bitcoin at a loss today and then buy it back tomorrow, you still have your loss on the books,” Gordon said. “This is an extremely effective strategy for crypto investors because they don’t have to exit their position.”
However, the strategy could disappear in the future as Congressional Republicans seek ways to fund President Donald Trump’s tax agenda.
Sens. Cynthia Lummis, R-Wyo. and Kirsten Gillibrand, D-N.Y., in 2023 reintroduced a regulatory framework for cryptocurrency, which included closing the crypto wash sale loophole. Former President Joe Biden’s fiscal year 2025 budget also included the proposal.
In the meantime, “the IRS gives us this loophole. We may as well take it,” Adam Markowitz, an enrolled agent at Luminary Tax Advisors in Windermere, Florida, previously told CNBC.
Of course, you should always consider your investing goals and timeline before implementing the tax strategy.
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